Resources | Subject Notes | Accounting
Books of prime entry are the first records made in the accounting system. They are used to initially record all business transactions. The main books of prime entry are the Journal and the Cash Book. These books are then used to post entries to the general ledger.
The journal is a chronological record of all business transactions. Each entry in the journal is called a Journal Entry. A typical journal entry includes the date, the names of the accounts affected, and the debit and credit amounts.
Here's an example of a journal entry:
| Date | Account Debited | Debit (£) | Account Credited | Credit (£) | Description |
|---|---|---|---|---|---|
| 2024-01-15 | Cash | $1,000 | Sales Revenue | $1,000 | Sale of goods for cash |
| 2024-01-16 | Rent Expense | $500 | Cash | $500 | Payment of monthly rent |
The cash book is used to record all cash receipts and cash payments. It is typically organized with columns for the date, the person or company paying or receiving, and the amount.
Here's an example of a cash book entry:
| Date | Details | Amount (£) |
|---|---|---|
| 2024-01-15 | Sales - Customer A | $200 |
| 2024-01-16 | Rent Payment | $500 |
| 2024-01-17 | Payment to Supplier B | $150 |
Once transactions have been recorded in the journal and cash book, they are posted to the general ledger. Posting involves transferring the information from the books of prime entry to the appropriate accounts in the ledger.
The ledger contains a separate account for each asset, liability, equity, revenue, and expense. When a transaction is posted, the debit and credit amounts from the journal or cash book are entered into the corresponding ledger account.
For example, the journal entry for the sale of goods for cash ($1,000 debit to Cash, $1,000 credit to Sales Revenue) would be posted to the Cash account in the ledger by debiting the Cash account with $1,000 and crediting the Sales Revenue account with $1,000.
Similarly, the cash book entry for the rent payment ($500 debit to Rent Expense, $500 credit to Cash) would be posted to the Rent Expense account in the ledger by debiting the Rent Expense account with $500 and crediting the Cash account with $500.
This process ensures that all transactions are accurately recorded in the general ledger, providing a comprehensive summary of the business's financial position.